Insurance Sector ‘Making Slow Progress on Accounting Standards’

Significant progress has been made on new insurance accounting standards, but key details still need to be settled, according to a
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study by reinsurer Swiss Re, which reviews the long-running debate to make them more economically relevant and internationally comparable.

The publication,
‘Insurance accounting reform: a glass half empty or half full?’
, reviews the potential upgrading and harmonising of insurance accounting practices and suggests that proposed accounting reforms can contribute to more meaningful financial reporting in insurance. However, they probably need to be complemented with additional metrics that clearly and concisely communicate insurers’ underlying economic value to their stakeholders.

The report also notes that insurance accounting reform is progressing slowly and that near-term prospects are not bright for a converged global insurance accounting standard.

For over a decade, accounting standard-setters have wrestled with how best to improve insurance accounting practices, it says. In particular, the International Accounting Standards Board (IASB), in collaboration with the US-based Financial Accounting Standards Board (FASB), has been developing a new valuation framework for insurance contracts and has sought to upgrade existing accounting standards for other financial instruments. At its September 2012 meeting, the IASB decided to seek additional industry feedback on its proposals.

According to Kurt Karl, chief economist of Swiss Re: “The IASB’s decision to re-consult highlights the continued willingness to move these reforms forward, but realistically, it means that new international accounting standards for insurance are now unlikely before 2016.”

While the FASB are due to expose their proposals for external review in the first half of next year, they announced in June 2012 that a converged international standard for insurance contracts is unlikely to emerge any time soon

The report comments that insurance presents significant challenges for accounting In order to prepare their financial statements, companies need methods to value their assets and liabilities and to recognise associated revenue and expenses. At face value, this would seem straightforward. But in fact it raises significant questions concerning valuation and measurement. Although these issues are not unique to insurance, they are arguably more acute than in many other industries.

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